How to Invest in Cryptocurrency in 2022 | Bitcoin for Beginners | USDC and DeFi StakingJan 07, 2022
It hasn't been long since cryptocurrencies like Bitcoin, Ethereum, Litecoin, and others became mainstream and the public started buying them up like hotcakes. The problems is that for most people this type of invest is either too risky or too difficult to access. In this short article I'm going to explain the easiest, safest, and fastest ways to invest in cryptocurrencies for those who are risk-averse but still want great returns.
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Basics of Cryptocurrency
I started my crypto journey in 2015. One of my clients worked in the sphere and told me how much it had grown and all of the real-world applications it now had. Honestly, I was very skeptical. It took a few months before I was ready to pursue the topic further and invest my own money. Here is what basic research tells you about investing in cryptocurrencies:
- Bitcoin was the first major cryptocurrency built on blockchain technology and it was created by a fictional (or maybe non-fictional) character. In other words, nobody knows who created it and it operates using a totally new type of technology.
That's what makes it scary.
If nobody knows who this person is that created Bitcoin, then how can we trust it? What if that person decides to just pull the plug on the entire operation and abscond with billions or trillions of dollars that have been invested? You are right to be skeptical.
And what is the blockchain? Well, at this point there are thousands of websites explaining the basics of how blockchain technology works and why it's going to revolutionize money as we know it. But basically, it is a decentralized ledger. There isn't a central, controlling body that operates it or controls it.
On one hand, that sounds great because everybody loves freedom and nobody likes it when other people tell them what to do (if they don't want to do that). But on the other hand, it's frightening to imagine that there isn't a central organization that you can contact if you have problems with your account. After all, this is your hard-earned money we are talking about and we want to know that someone is responsible for keeping our money safe.
Now there are thousands of cryptocurrencies, not just Bitcoin, and they all operate a little differently but are basically built using the same blockchain technology. If you're interested in learning more about blockchain technology, there is a plethora of information online and many sites will pay you small amounts of crypto for learning.
Investing for Gains
The first step in most investors' journeys is investing for gains. This is when you buy an asset, hold it for some period of time, and then sell it at a higher price. The result of this strategy (when successful) is that you sell the asset for a larger amount than you purchased it for.
For example: You purchased 10 Bitcoins for $500 each (total of $5,000) on January 1st. On March 1st you sold 10 Bitcoins for $700 each (total of $7,000). This results in $2,000 of gains (profit).
In the U.S. tax code this is labeled a capital gain and you need to pay taxes on the $2,000 you've earned from this investment at whatever percentage the tax authorities have set for capital gains.
Most people invest like this.
When I started in 2015 I had this strategy and the key phrase everyone in the crypto space repeated was "HODL", which was a meme phrase for "hold", meaning - hold your crypto and do not sell it because it will be worth a lot more later.
Investing for Dividends
Many people who invest in cryptocurrencies first invest in the stock market buying shares of companies they think will be more valuable in the future (investing for gains). And traditional stock market investors who are looking for more ways to get a return on their money often turn to dividend stock investing. Cryptocurrency now has a similar option.
Dividend investing focuses on how much of a percentage yield the company pays to its investors (usually each financial quarter of the year). Some companies pay 0.5% or less, while some pay 8.8% or more. It sounds simple: buy the stocks that have higher yields and pay more money. But it is more complicated than that because the profits they send to investors take away from the overall profit of the company, therefore reducing the value of the company and it's share price (usually). So, just investing in dividend stocks doesn't guarantee you a higher return than investing in non-dividend stocks. You'll get dividend payments, but your capital gains might be lower.
In the cryptocurrency world something called DeFi has become more standardized, safer, and more commonplace recently. Use cases for applications built on top of cryptocurrency blockchains have exploded since 2015 with Ethereum-based smart contracts leading the world into a new era of finance. DeFi stands for decentralized finance and it allows anyone in the world to get a loan, even if banks and traditional financial institutions would deny them.
This new world of decentralized finance also allows investors to use staking, liquidity farming, swapping, and other processes to earn a percentage on the money they hold in certain cryptocurrencies. Similar to dividend stocks, for simply holding an asset you can earn a percentage yield regularly.
How to Buy Cryptocurrency
There are a lot of ways to buy cryptocurrency, which should be no surprise - everybody wants your money. When you buy cryptocurrency you typically pay a small fee for the transaction. If you do a quick search for where you can buy Bitcoin or any other cryptocurrency coin, you'll find hundreds of exchanges that offer to sell you crypto for cash. But where will you keep your coins?
The suggested way to hold coins is in a secure wallet created specifically for that type of cryptocurrency. That's how everybody did it in the good old days. And the reason it's preferable to do it that way is because it truly is decentralized. You can still operate in that fashion today, but it's less convenient.
Many people today use centralized exchanges that have representative wallets in hundreds or thousands of different cryptocurrencies, so you don't have to actually create all of those different wallets yourself. The catch here is that technically the exchange holds your assets, not you. If you operate in the slow, old-fashioned way, it is you and only you who hold your assets. So, this step in the process is really up to you to decide, but I'm going to give you examples of the new, centralized way to invest in decentralized currency.
Voyager (get $25 BTC when you use this link to join: https://voyager.onelink.me/WNly/referral?af_sub5=E806FB995)
This is a mobile app that lets you buy a variety of cryptocurrencies and then pays you a percentage for holding them. Each currency pays you a different percentage and has a different minimum average monthly balance, but the best part of using Voyager in my opinion is the offer of 9% APY on USDC.
USDC is a cryptocurrency that is linked to the United States dollar (USD), so its value stays the same as USD. When Bitcoin and the rest of the crypto market fluctuates up and down, this coin stays linked to the value of USD. Plus, when you hold USDC you technically aren't holding USD, so you can sell other assets for USDC instead of USD, in order to avoid triggering taxable events.
This is a great option for any beginner or advanced cryptocurrency investor because you can purchase USDC with USD in the Voyager app. Then, you can earn 9% APY on your USDC just for holding it in the Voyager app. Your earnings (similar to dividends) are paid out monthly and you receive them in the same cryptocurrency that you are already holding. So, if you buy USDC and hold USDC, you will receive your earnings in USDC also.
For example: You buy $10,000 of USDC on the Voyager app. You hold it for one month. 9% APY means you get 9% per year and that's 0.75% per month. At the end of the first month you get $75 of USDC added to your balance. You can withdraw the entire $10,075 or just the $75 or keep it all invested. It's up to you.
Crypto.com (get $25 CRO when you use this link to join: https://crypto.com/app/p5r7rgcsy6)
This platform has a website and a mobile app. The biggest difference between Crypto.com and Voyager at this moment is that Voyager allows you to link to your bank account via Plaid, which is a trusted service that many banks use to integrate with outside apps and services. Crypto.com prefers that you buy crypto with a credit card or by bank transfer. They even offer a 30-day period when you sign up where fees for credit card purchases are waived.
Similar to other platforms, different currencies pay different percentages when you hold them inside the app and Crypto.com offers some of the highest percentages. Right now they are offering 12% annual percentage on USDC.
Coinbase (get $10 BTC when you use this link to join: http://coinbase.com/join/huntle_co)
This is one of the most trusted companies in the cryptocurrency space. Of course, anybody who is a diehard fan of decentralized currency is going to tell you that Coinbase is centralized and therefore should not be trusted. But if we approach cryptocurrency as a practical investor, then we need some centralized structures to make it easier for us to operate. Coinbase was one of the first cryptocurrency companies to be accepted by the financial, trade, and governmental authorities in the United States, which helped it solidify market share early.
But the new kids on the block, namely Voyager, gives Coinbase a run for its crypto money because Coinbase offers much lower APYs. In this way, Coinbase operates like a bank, offering only 0.15% APY on USDC.
Remember that you should only invest in assets that you understand because you should be highly-confident that the asset you invest in will become more valuable. I'm not a financial advisor, accountant, or lawyer and all of the advice written in this article and spoken in the embedded video are only my opinion.
That being said, I've personally moved a lot of money to USDC on Voyager and I'm collecting 9% APY. It's a great way to earn passively and I get to decide when to trigger taxable events because USDC is not technically the same thing as USD. Plus, Voyager is FDIC insured, which boosts the confidence I place in them.
There's much more to investing than percentages you can gain. Different investments carry with them different types and amounts of risk, so it's important that you look at the big picture before investing even one dollar. Create an investment strategy and enter the market with a purpose. This will help you psychology control the urge to constantly buy and sell.